Listening to David Cameron’s first speech on the steps of Downing Street, Archbishop Vincent Nichols says he nearly fell off his chair at the Prime Minister’s pledge to work for “the common good’.
His surprise was down to the fact that only a few weeks earlier, Catholic bishops had published a document offering election advice to churchgoers called “Choosing the Common Good”. Archbishop Nichols is “encouraged at the echoes of Catholic teaching emerging in the language of the new Coalition Government.” The article goes on to say “the Archbishop appears filled with an infectious optimism that the country could be on the cusp of returning to a more cohesive, united society.”
Nichols said,
If we can generate that sense of volunteering and the sense of fulfilment that comes from it in our society, then we would be better for it. The Big Society is a step in that direction.
It should come as no surprise to our Catholic leader in the UK that a Conservative Prime Minister should be in tune with large parts of Catholic Social Teaching. One of the greatest influences on Thatcher for example was F A Hayek, who was born a Catholic Christian, although he later became agnostic. The final sentence of his last book, The Fatal Conceit does seem to offer up a legitimate view that re reverted to his Catholic Faith.
In 1993 the Hayek Memorial Lecture “Two moral ideas of business” run by the Institute of Economic Affairs, Michael Novak in his book of the same year “The Catholic Ethic and the Spirit of Capitalism” revealed to us that Hayek had been having extensive conversations with Pope John Paul II who wrote the encyclical “Centesimus Annus.” Chapters 31 and 32 are very Hayekian.
As Karol Wojtyla, the old Pope’s doctoral Thesis, “The Acting Person,” is replete with observation that it is the creative and dynamic interaction of free citizens that causes social co-operation. This idea of course underscores Hayek’s conception of the spontaneous order of social co-operation.
Could this be David Cameron or F A Hayek writing? Is this the same as the spontaneous order of human co-operation or the mutual co-operation of The Big Society? Are they the same?
By intervening directly and depriving society of its responsibility, the Social Assistance State leads to a loss of human energies and an inordinate increase of public agencies, which are dominated more by bureaucratic thinking than by concern for serving their clients, and which are accompanied by an enormous increase in spending, In fact, it would appear that needs are best understood and satisfied by people who are closest to them who act as neighbours to those in need. It should be added that certain kinds of demands often call for a response which is not simply material but which is capable of perceiving the deeper human need.
Well it is from Centesimus Annus, by Pope John Paul II No 48 1991.
Archbishop Nichols should be aware that the Cameron modernised Conservative Party, which (whether it knows it or not) sits on a great body of thought that is deeply rooted in Catholic Social Thought.
I have written here about the Thatcherite view of society contrasted with the Cameronian one here. It is worth highlighting some of these points again.
Thatcher’s Infamous Quote
From an interview given by Prime Minister Margret Thatcher to Women’s Own magazine, October 31, 1987:
I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the Government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!” “I am homeless, the Government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first. It is our duty to look after ourselves and then also to help look after our neighbour and life is a reciprocal business and people have got the entitlements too much in mind without the obligations, because there is no such thing as an entitlement unless someone has first met an obligation [...]
I wrote,
It would be ignorant to say that there is no such thing as society. Society is the purposeful actions of all the individuals who participate in it. As such it is simply the sum of all its parts. Delve a little bit deeper and you will see that is in fact the most liberating and fulfilling invention of mankind discovered by the use of reason. The ability for man to cooperate and pursue his ends is society. Working within the societal structure of mutual co-operation to facilitate exchange of goods and services, you get the additional benefits of friendship and a sense of belonging or togetherness. This is often hailed as one of the greatest benefits of living and cooperating together.
The principle of the division of labour that allows us to avoid providing individually for all our goods and services, shelter and warmth, with the necessary impoverishment this would mean for the majority (and probably death), make us what we are as human beings. We are lifted out of the survival of the fittest war of all against all.
The Darwinian nightmare is not writ large in the human species as it seems to be for most other life forms.
Mrs Thatcher was taken out of context, as can be seen when you read the full text of the talk. However I suspect she, or her speech writers, displayed little understanding of the true benefits of the discovery of mutual human co-operation. I think they were also of the school of thought that would quite rightly argue for less government, as is Cameron, one of her successors. However she did not have much of an idea of what to put in its place. The transition from a government-run, welfare-providing, rule-making, centralised decision-making society to individual responsibility, local-community-led society is quite a painful process. To be smoothly transitioned to a society more compatible with liberty, I fear warrants only a constructivist approach to getting top-down government out of our lives and to rebalancing responsibility away from government and to the individual and the family. Cameron is spot on the money with regard to this.
Consider these extracts from “The Big Society” (delivered on the 10th Nov 2009) speech by David Cameron our aspiring PM.
I believe that in general, a simplistic retrenchment of the state which assumes that better alternatives to state action will just spring to life unbidden is wrong. Instead we need a thoughtful re-imagination of the role, as well as the size, of the state.
And:
The size, scope and role of government in Britain has reached a point where it is now inhibiting, not advancing the progressive aims of reducing poverty, fighting inequality, and increasing general well-being. Indeed there is a worrying paradox that because of its effect on personal and social responsibility, the recent growth of the state has promoted not social solidarity, but selfishness and individualism.
This is an extremely important point. Absent personal responsibility and the mutual bonds that bind us together through the universal division of labour fall away. The selfish, those who do not take individual responsibility, the person who says he has a “right” to a job, a house, an income etc, these people believe others must provide for them. This is selfishness in its extreme, if they are fit and ready to work. We all suspect that with 2.7 million people on Incapacity Benefit, there is extreme selfishness and little societal / individual responsibility at play. In war, enemies have tried their best to bomb the hell out of us and incapacitate as many of us as possible, but I suspect in 1945 there were not 2.7m people incapacitated in the UK!
Cameron goes on to say
And here lies the rub.
The paradox at the heart of big government is that by taking power and responsibility away from the individual, it has only served to individuate them. What is seen in principle as an act of social solidarity, has in practice led to the greatest atomisation of our society. The once natural bonds that existed between people – of duty and responsibility – have been replaced with the synthetic bonds of the state – regulation and bureaucracy.
Our alternative to big government is the big society.
But we understand that the big society is not just going to spring to life on its own: we need strong and concerted government action to make it happen.
Archbishop Nichols should be not surprised the modern Conservative Party has moved on and improved from the raw Thatcherite approach in its positioning of the free society with that of the Modern Catholic Social Teaching that it has so much in common with. When the Pope visits the UK this September, we trust that his advisors and Cameron’s celebrate the great vision of the last Pope, Hayek and Cameron himself on these matters.
Some related articles that go deeper into some of these issues mentioned above are listed here
It is a great shame that the Pope will not be visiting Northern Ireland as there is a large Catholic minority that has little in common with its political representatives who are largely statist, interventionist top down socialist meddlers who have little in common with Catholic teaching. Those Catholics actually have more in Common with The Big Society vision of Cameron and no political representation.
In a recent polemic, the well-regarded investment manager and part-time climate activist, Jeremy Grantham, set out his version of the Nicene Creed of climate alarmism and asks – either naively or disingenuously – who is supposed to benefit from all this if it is simply a ‘conspiracy’, a term deliberately chosen – along with the more emotive epithet of ‘denier’ – to ridicule the exercise of rational scientific scepticism and to deride those not fully willing to believe that everything that de Tocqueville’s ‘vast tutelary power’ disseminates is the unalloyed truth.
To answer Mr. Grantham’s question, let us consider this affliction of anthrophobic, anti-capitalistic and wholly irrational environmentalism in a little more detail, whether exemplified by cuddly panda(r) pressure groups; by the truly shocking, warmed-over eugenicists of the population reduction ‘movement’; or in the compulsory purchase of those contemporary green indulgences which masquerade as carbon permits.
Far from finding it difficult to identify who gains from the promotion of what Vaclav Klaus has rightly categorised as the greatest threat to freedom since the fall of Communism, the real problem is to separate out the beneficiaries of this most pernicious of ideologies since it serves so many disparate interests all at once.
Big business can enjoy it – as it does all regulatory blankets – as a means of disadvantaging smaller, would-be competitors. Boardroom egoists can bask in the vainglory of the eco-plaudits they can win from both kings and credulous crowds, while disregarding their primary duty to maximise shareholder returns the honest way, rather than through the public purse.
Union leaders relish it, because it allows them to dress their selfish restrictionism up in the colours of compassion. “No!” they cry, “You mustn’t move the factory to China – they pollute too much! Here at home, we may be relatively expensive, but at least we’re clean. Pay us more for the sake of your children!”
Messianic political leaders – each lustful of his precious “legacy” – the many neo-Jacobin fanatics, and the kind of frustrated dirigistes who secretly bemoan the fall of the Berlin Wall can all exploit Green scaremongering to order their twisted Dystopias, to impose whole new rafts of taxes upon their electors, and to interfere ever more closely with individual liberties as they do.
National Security Strangeloves have a certain coincidence of interests here, too, for not only can they hope that the adoption of the Cult will inhibit the economic ascent of any potential rivals to their own Hegelian deity, but they can easily substitute the militarists’ hallowed concept of “autarky” whenever they encounter the nauseating buzzword, “sustainability.”
Then there are whole faculty buildings packed with hack scientists whose uninspired work promises to deliver neither fundamental insight nor commercial usefulness, but who can enhance the importance of their pronouncements – and better harvest public funding – by uncritically endorsing the new atmospheric atavism and by tampering with their unscrutinised ‘data’ in order to give their intellectual prostitution a veneer of objectivity.
Next up we have the unwashed hordes of woad-painted New Age warriors – dole-devouring, didgeridoo-droning addle-heads – all convinced that if they throw a few brickbats outside a WTO meeting they will soon usher in the kind of faux-Celtic fantasy world best restricted to the escapist realms of the RPG addict.
In contrast, we have an entire concours d’elegance of those fad-ridden fortysomethings who are the latest designer-labelled devotees of the Earth Goddess, their Kensington mews coffee tables groaning under the forest-felling weight of the pretty picture books issued as holy writ by Gaia’s own High Priest of the Britons, the Attenborough.
Finally, we have the same hoi polloi-hating coterie of Michelin-munching, silk-suited Platonic elitists – of the kind so mercilessly exposed in John Carey’s seminal work, The Intellectuals and the Masses.
These sanctimonious, self-appointed meddlers can usually be found advocating higher taxes for budget holidaymakers while hypocritically flying first class from one five-star NGO summit to another. These are the Davos Dominicans – mendicants who nonetheless manage to live high on the hog as they seek to impose their narrow and stifling orthodoxy on all us poor, toiling peasants, while wielding Bell, Book, and Biofuel in the attempt to exorcise us of that most diabolical of fiends, the dreadful demon, Carbon.
That most ‘Open’ of Conspiracists, that most persistent of re-modellers of the human clay, that indefatigable prophet of the World State – H.G. Wells – long ago proposed much of the programme which Greens and the Carbophobes wish to bring about, while no less an infernal genius than the Marquis de Sade advocated the equation of animal and plant ‘rights’ with those of humanity which the ‘Plague Species’ misanthropes seek to write into law today.
As Wells wrote,
Religion, modern and disillusioned, has for its outward task to set itself to the control and direction of political, social, and economic life. If it does not do that, then it is no more than a drug for easing discomfort, ‘the opium of the peoples’.
Mix that re-harnessed religious instinct in with the temptations of rent-seeking, the sycophancy which attaches to power, and the hunger for power itself and it is all too simple to answer the question of who stands to benefit from a belief – real or affected – in climate orthodoxy.
In the course of things, I had cause to quote Bastiat: “The state is the great fiction by which everyone seeks to live at the expense of everyone else.” This prompted me to dig out the original essay.
As the UK’s national debt doubles and after a period within which QE was used, creating space in the market for that debt, one wonders how much longer we can go on like this before we are forced to rediscover the truths in this classic work.
I wish that someone would offer a prize, not of five hundred francs, but of a million, with crosses, crowns, and ribbons, to whoever would give a good, simple, and intelligible definition of this term: the state.
What an immense service he would render to society!
The state! What is it? Where is it? What does it do? What should it do?
All that we know about it is that it is a mysterious personage, and certainly the most solicited, the most tormented, the busiest, the most advised, the most blamed, the most invoked, and the most provoked in the world.
For, sir, I do not have the honor of knowing you, but I wager ten to one that for six months you have been making utopias; and if you have been making them, I wager ten to one that you place upon the state the responsibility of realizing them.
And you, madame, I am sure that you desire from the bottom of your heart to cure all the ills of mankind, and that you would be in no wise embarrassed if the state would only lend a hand.
But alas! The unfortunate state, like Figaro, knows neither to whom to listen nor where to turn. The hundred thousand tongues of press and rostrum all cry out to it at once:
“Organize labor and the workers.”
“Root out selfishness.”
“Repress the insolence and tyranny of capital.”
“Make experiments with manure and with eggs.”
“Furrow the countryside with railroads.”
“Irrigate the plains.”
“Plant forests on the mountains.”
“Establish model farms.”
“Establish harmonious workshops.”
“Colonize Algeria.”
“Feed the babies.”
“Instruct the young.”
“Relieve the aged.”
“Send the city folk into the country.”
“Equalize the profits of all industries.”
“Lend money, without interest, to those who desire it.”
“Liberate Italy, Poland, and Hungary.”
“Improve the breed of saddle horses.”
“Encourage art; train musicians and dancers.”
“Restrict trade, and at the same time create a merchant marine.”
“Discover truth and knock a bit of sense into our heads.”
“The function of the state is to enlighten, to develop, to increase, to fortify, to spiritualize, and to sanctify the soul of a nation.”2
“Oh, sirs, a little patience,” replies the state with a piteous air. “I shall try to satisfy you, but for that I shall need some resources. I have prepared proposals for five or six taxes, brand new and the mildest in the world. You will see how glad people will be to pay them.”
But then a great cry is raised: “Shame! Shame! Anybody can do a thing if he has the resources! Then you would not be worthy of being called the state. Far from hitting us with new taxes, we demand that you eliminate the old ones. Abolish:
“The tax on salt;
“The tax on beverages;
“The tax on letters;
“The octroi;*
“Licenses;
“Prestations.”
In the midst of this tumult, and after the country had changed its state two or three times for not having satisfied all these demands, I tried to point out that they were contradictory. Good Lord! What was I thinking of? Could I not keep this unfortunate remark to myself?
So here I am, discredited forever; and it is now an accepted fact that I am a heartless, pitiless man, a dry philosopher, an individualist, a bourgeois—in a word, an economist of the English or American school.
Oh, pardon me, sublime writers, whom nothing stops, not even contradictions. I am wrong, no doubt, and I retract my error with all my heart. I demand nothing better, you may be sure, than that you should really have discovered outside of us a benevolent and inexhaustible being, calling itself the state, which has bread for all mouths, work for all hands, capital for all enterprises, credit for all projects, ointment for all wounds, balm for all suffering, advice for all perplexities, solutions for all problems, truths for all minds, distractions for all varieties of boredom, milk for children and wine for old age, which provides for all our needs, foresees all our desires, satisfies all our curiosity, corrects all our errors, amends all our faults, and exempts us all henceforth from the need for foresight, prudence, judgment, sagacity, experience, order, economy, temperance, and industry.
And why should I not desire it? Heaven forgive me! The more I reflect on it, the more I find how easy the whole thing is; and I, too, long to have at hand that inexhaustible source of riches and enlightenment, that universal physician, that limitless treasure, that infallible counselor, that you call the state.
Hence, I insist that it be shown to me, that it be defined, and that is why I propose that a prize be offered to the first to discover this rare bird. For, after all, it will have to be admitted that this precious discovery has not yet been made, since the people have up to now overthrown immediately everything that has presented itself under the name of the state, precisely because it has failed to fulfill the somewhat contradictory conditions of the program.
Need it be said that we may have been, in this respect, duped by one of the most bizarre illusions that has ever taken possession of the human mind?
Man is averse to pain and suffering. And yet he is condemned by nature to the suffering of privation if he does not take the pains to work for a living. He has, then, only the choice between these two evils. How arrange matters so that both may be avoided? He has found up to now and will ever find only one means: that is, to enjoy the fruits of other men’s labor; that is, to arrange matters in such a way that the pains and the satisfactions, instead of falling to each according to their natural proportion, are divided between the exploited and their exploiters, with all the pain going to the former, and all the satisfactions to the latter. This is the principle on which slavery is based, as well as plunder of any and every form: wars, acts of violence, restraints of trade, frauds, misrepresentations, etc.—monstrous abuses, but consistent with the idea that gave rise to them. One should hate and combat oppressors, but one cannot say that they are absurd.
Slavery is on its way out, thank Heaven, and our natural inclination to defend our property makes direct and outright plunder difficult. One thing, however, has remained. It is the unfortunate primitive tendency which all men have to divide their complex lot in life into two parts, shifting the pains to others and keeping the satisfactions for themselves. It remains to be seen under what new form this deplorable tendency is manifested.
The oppressor no longer acts directly by his own force on the oppressed. No, our conscience has become too fastidious for that. There are still, to be sure, the oppressor and his victim, but between them is placed an intermediary, the state, that is, the law itself. What is better fitted to silence our scruples and—what is perhaps considered even more important—to overcome all resistance? Hence, all of us, with whatever claim, under one pretext or another, address the state. We say to it: “I do not find that there is a satisfactory proportion between my enjoyments and my labor. I should like very much to take a little from the property of others to establish the desired equilibrium. But that is dangerous. Could you not make it a little easier? Could you not find me a good job in the civil service or hinder the industry of my competitors or, still better, give me an interest-free loan of the capital you have taken from its rightful owners or educate my children at the public expense or grant me incentive subsidies or assure my well-being when I shall be fifty years old? By this means I shall reach my goal in all good conscience, for the law itself will have acted for me, and I shall have all the advantages of plunder without enduring either the risks or the odium.”
As, on the one hand, it is certain that we all address some such request to the state, and, on the other hand, it is a well-established fact that the state cannot procure satisfaction for some without adding to the labor of others, while awaiting another definition of the state, I believe myself entitled to give my own here. Who knows if it will not carry off the prize? Here it is:
The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.
For, today as in the past, each of us, more or less, would like to profit from the labor of others. One does not dare to proclaim this feeling publicly, one conceals it from oneself, and then what does one do? One imagines an intermediary; one addresses the state, and each class proceeds in turn to say to it: “You, who can take fairly and honorably, take from the public and share with us.” Alas! The state is only too ready to follow such diabolical advice; for it is composed of cabinet ministers, of bureaucrats, of men, in short, who, like all men, carry in their hearts the desire, and always enthusiastically seize the opportunity, to see their wealth and influence grow. The state understands, then, very quickly the use it can make of the role the public entrusts to it. It will be the arbiter, the master, of all destinies. It will take a great deal; hence, a great deal will remain for itself. It will multiply the number of its agents; it will enlarge the scope of its prerogatives; it will end by acquiring overwhelming proportions.
But what is most noteworthy is the astonishing blindness of the public to all this. When victorious soldiers reduced the vanquished to slavery, they were barbarous, but they were not absurd. Their object was, as ours is, to live at the expense of others; but, unlike us, they attained it. What are we to think of a people who apparently do not suspect that reciprocal pillage is no less pillage because it is reciprocal; that it is no less criminal because it is carried out legally and in an orderly manner; that it adds nothing to the public welfare; that, on the contrary, it diminishes it by all that this spendthrift intermediary that we call the state costs?
And we have placed this great myth, for the edification of the people, in the Preamble of the Constitution. Here are the first words of the Preamble:
France has been constituted as a republic in order to …. raise all its citizens to an ever higher standard of morality, enlightenment, and well-being.
Thus, it is France, or the abstraction, which is to raise Frenchmen, or the realities, to a higher standard of morality, well-being, etc. Is this not to be possessed by the bizarre illusion that leads us to expect everything from another power than our own? Is this not to imply that there is, above and beyond the French people, a virtuous, enlightened, rich being who can and ought to bestow his benefits on them? Is this not to assume, and certainly most gratuitously, that there exists between France and the people of France, that is, between the synoptic, abstract term used to designate all these individuals and the individuals themselves, a father-son, guardian-ward, teacher-pupil relationship? I am well aware of the fact that we sometimes speak metaphorically of “the fatherland” or of France as a “tender mother.” But in order to expose in its full flagrance the inanity of the proposition inserted into our Constitution, it suffices to show that it can be reversed, I will not say without disadvantage, but even to advantage. Would exactness suffer if the Preamble had said:
“The French have been constituted as a republic in order to raise France to an ever higher standard of morality, enlightenment, and well-being”?
Now, what is the value of an axiom of which the subject and the object can be interchanged without disadvantage? Everyone understands the statement: “The mother will nurse the baby.” But it would be ridiculous to say: “The baby will nurse the mother.”
The Americans formed another idea of the relations of citizens to the state when they placed at the head of their Constitution these simple words:
We, the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquillity, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain, etc.
There is no mythical creation here, no abstraction from which the citizens demand everything. They expect nothing save from themselves and their own efforts.
If I have permitted myself to criticize the first words of our Constitution, it is not, as one might think, in order to deal with a mere metaphysical subtlety. I contend that this personification of the state has been in the past, and will be in the future, a fertile source of calamities and of revolutions.
Here the public, on the one side, the state on the other, are considered as two distinct entities, the latter intent on pouring down upon the former, the former having the right to claim from the latter, a veritable shower of human felicities. What must be the inevitable result?
The fact is, the state does not and cannot have one hand only. It has two hands, one to take and the other to give—in other words, the rough hand and the gentle hand. The activity of the second is necessarily subordinated to the activity of the first. Strictly speaking, the state can take and not give. We have seen this happen, and it is to be explained by the porous and absorbent nature of its hands, which always retain a part, and sometimes the whole, of what they touch. But what has never been seen, what will never be seen and cannot even be conceived, is the state giving the public more than it has taken from it. It is therefore foolish for us to take the humble attitude of beggars when we ask anything of the state. It is fundamentally impossible for it to confer a particular advantage on some of the individuals who constitute the community without inflicting a greater damage on the entire community.
It finds itself, then, placed by our demands in an obviously vicious circle.
If it withholds the boon that is demanded of it, it is accused of impotence, of ill will, of incapacity. If it tries to meet the demand, it is reduced to levying increased taxes on the people, to doing more harm than good, and to incurring, on another account, general disaffection.
Thus, we find two expectations on the part of the public, two promises on the part of the government: many benefits and no taxes. Such expectations and promises, being contradictory, are never fulfilled.
Is this not the cause of all our revolutions? For between the state, which is lavish with impossible promises, and the public, which has conceived unrealizable expectations, two classes of men intervene: the ambitious and the utopian. Their role is completely prescribed for them by the situation. It suffices for these demagogues to cry into the ears of the people: “Those in power are deceiving you; if we were in their place, we would overwhelm you with benefits and free you from taxes.”
And the people believe, and the people hope, and the people make a revolution.
Its friends are no sooner in charge of things than they are called on to make good their promises: “Give me a job, then, bread, relief, credit, education, and colonies,” say the people, “and at the same time, in keeping with your promises, deliver me from the burden of taxation.”
The new state is no less embarrassed than the old, for, when it comes to the impossible, one can, indeed, make promises, but one cannot keep them. It tries to gain time, which it needs to bring its vast projects to fruition. At first it makes a few timid attempts; on the one hand, it extends primary education a little; on the other, it reduces somewhat the tax on beverages (1830). But it is always confronted with the same contradiction: if it wishes to be philanthropic, it must continue to levy taxes; and if it renounces taxation, it must also renounce philanthropy.
These two promises always and necessarily conflict with each other. To have recourse to borrowing, that is, to eat into the future, is indeed a means of reconciling them in the present; one tries to do a little good in the present at the expense of a great deal of harm in the future. But this procedure raises the specter of bankruptcy, which destroys credit. What is to be done, then? The new state then takes a firm stand against its critics: it regroups its forces to maintain itself, it stifles opinion, it has recourse to arbitrary decrees, it ridicules its former maxims, it declares that one can govern only on condition of being unpopular; in short, it proclaims itself the government.
And this is precisely what other demagogues are waiting for. They exploit the same illusion, take the same road, obtain the same success, and soon come to be engulfed in the same abyss.
This is the way we came to the February Revolution. At that time the illusion that is the subject of this article had made its way further than ever into popular thought, along with socialist doctrines. More than ever before, people expected that the state, in a republican form, would open wide the floodgates of its bounty and close off the stream of taxes. “I have often been deceived,” said the people, “but this time I myself will stand guard to see that I am not again deceived.”
What could the provisional government do? Alas! What is always done in such a circumstance: promise and gain time. It did not fail to do this, and, to add solemnity to its promises, it gave them definitive form in its decrees. “Increased welfare, shorter working hours, relief, credit, gratuitous education, agricultural settlements, land clearance, and, at the same time, reductions in the taxes on salt, beverages, letters, meat, all will be granted …. when the National Assembly meets.”
The National Assembly met, and, as two contradictory ideas cannot both be realized, its task, its sad task, was confined to retracting, as gently as possible, one after another, all the decrees of the provisional government.
Still, in order not to make the disappointment too cruel, it had to compromise a little. Certain commitments were kept; others were fulfilled in token form. Hence, the present administration is trying to devise new taxes.
Now, looking ahead a few months, I ask myself sadly what will happen when the newly created civil servants go out into the country to collect the new taxes on inheritances, incomes, and the profits of agriculture. May Heaven give the lie to my presentiments, but here again I see a role for the demagogues to play.
Read the last Manifesto of the Montagnards* which they issued in connection with the presidential election. It is rather long, but can be summed up in a few words: The state should give a great deal to the citizens and take little from them. It is always the same tactic, or, if you will, the same error.
The state owes instruction and education free of charge to all citizens.
It owes:
A general and professional education, appropriate as nearly as possible to the needs, vocations, and capacities of each citizen.
It should:
Teach each citizen his duties toward God, toward men, and toward himself; develop his feelings, his aptitudes, and his faculties; give him, in short, proficiency in his work, understanding of his best interests, and knowledge of his rights.
It should:
Put within everyone’s reach literature and the arts, the heritage of human thought, the treasures of the mind, all the intellectual enjoyments which elevate and strengthen the soul.
It should:
Insure against every disaster, fire, flood, etc. [how great are the implications of this little et cetera!], suffered by a citizen.
It should:
Intervene in the relations between capital and labor and make itself the regulator of credit.
It owes:
Practical encouragement and efficacious protection to agriculture.
It should:
Buy up the railroads, the canals, the mines, and undoubtedly also administer them with that industrial expertise which is so characteristic of it.
It should:
Stimulate laudable enterprises, and encourage and aid them with all the resources capable of making them succeed. As regulator of credit, it will largely control the industrial and agricultural associations, in order to assure their success.
The state is to do all this without prejudice to the services that it performs today; and, for example, it must always adopt a threatening attitude toward foreign nations; for, say the signers of the program, linked by that holy solidarity and by the precedents of republican France, we extend our commitments and our hopes, beyond the barriers that despotism has raised between nations, on behalf of all those whom the yoke of tyranny oppresses; we desire that our glorious army be again, if it must, the army of liberty.
You see that the gentle hand of the state, that good hand which gives and which bestows, will be very busy under the government of the Montagnards. Perhaps you believe that the same will be true of the rough hand, of the hand that reaches into our pockets and empties them?
Undeceive yourselves. The demagogues would not know their business if they had not acquired the art of hiding the rough hand while showing the gentle hand.
Their reign will surely mean a jubilee for the taxpayer.
“It is on luxuries,” they say, “not necessities, that taxes should be imposed.”
Will it not be a happy day when, in order to load us with benefits, the public treasury is content to take from us just our superfluous funds?
Nor is this all. The Montagnards intend that “taxation should lose its oppressive character and should henceforth be no more than an act of fraternity.”
Heavenly days! I am well aware of the fact that it is the vogue to get fraternity in everywhere, but I did not suspect that it could be put into the receipt of the tax collector.
Getting down to details, the signers of the manifesto say:
We demand the immediate abolition of taxes that fall on objects of primary necessity, such as salt, drinks, et cetera.
Reform of the real estate tax, the octroi [a local tax], and license fees.
Justice free of charge, that is, the simplification of forms and the reduction of expenses. [This no doubt has to do with official stamps.]
Thus, real estate taxes, the octroi, license fees, taxes on stamps, salt, beverages, mail—all are to be done away with. These gentlemen have found the secret of keeping the gentle hand of the state energetic and active, while paralyzing its rough hand.
Indeed! I ask the impartial reader, is this not childish and, what is more, dangerously childish? Why would people not make one revolution after another, once they had made up their minds not to stop until this contradiction had been made a reality: “Give nothing to the state, and receive a great deal from it”?
Does anyone believe that if the Montagnards came to power, they would not themselves become the victims of the very means that they employed to seize it?
Citizens, throughout history two political systems have confronted each other, and both of them can be supported by good arguments. According to one, the state should do a great deal, but also it should take a great deal. According to the other, its double action should be barely perceptible. Between these two systems, one must choose. But as for the third system, which is a mixture of the two others, and which consists in requiring everything from the state without giving anything to it, it is chimerical, absurd, childish, contradictory, and dangerous. Those who advance it in order to give themselves the pleasure of accusing all governments of impotence and exposing them thus to your violent attacks, flatter and deceive you, or at least they deceive themselves.
As for us, we think that the state is not and should not be anything else than the common police force instituted, not to be an instrument of oppression and reciprocal plunder, but, on the contrary, to guarantee to each his own and to make justice and security prevail.
When I first started dipping my toe into writing and researching Catholic social teaching, I did not see a particular good picture. The economic thinking which seemed to inform Catholic comment on social issues seemed to be weak. Much Christian comment on economic matters has tended to ignore not just empirical evidence but also, more or less, incontrovertible economic laws as well as ignoring much in the tradition of Catholic social teaching itself.
But, before I move on, I would like to pay tribute to the recent English and Welsh Catholic Bishops’ letter. It demonstrates both a considerable effort in absorbing and articulating some of the best of the tradition of Catholic social teaching as well as considerable humility in terms of the authors recognising the limits to their competence on the technical detail of economic matters. And this humility is very important when talking about these issues. Unintended consequences, about which the French nineteenth-century Catholic economist Frederic Bastiat wrote so well, are so ubiquitous in economics that, if you google the three words together, you get 1,240,000 responses. It should be a sobering thought for clergy who comment on economic matters that this is actually more than the total worldwide google responses for the words Catholic social teaching!
Many Christians grudgingly accept a free economy because of the material benefits it brings. But, today, I want to go further than this. A free economy should be seen as something that is intrinsically good of itself. Similarly, we should be aware of the problems of government intervention not just because of the damage governments can cause to material welfare, but because it can undermine certain basic precepts of a great, virtuous society. It is notable, in fact, that there is growing acceptance of some of what I will say from those on the left. Last year, I gave one of the four public lectures at Westminster Cathedral and John Battle, the Labour MP, gave another. He may have disagreed with my lecture profoundly but, I agreed with much of his. What was interesting about his lecture is that when he talked about “socialism” he was referring to organisations such as cooperatives and so on which I would regard as part of and parcel of a free economy. There was almost nothing in his lecture I disagreed with except his use of terminology.
My thesis about the importance of a free economy, the primacy of voluntary action and the subservience of government to the individual and the family is firmly rooted in the great history of Catholic social teaching. It is of interest to note that both the free market Nobel Laureate F. A. Hayek and Pope John Paul II, in their last significant books on the subject, traced the evils of the world – though for different reasons – to Descartes. That should make us pause for thought. Indeed, it is also interesting that both Francis’ centre and those who argue from my perspective, get their inspiration from the late scholastics of Salamanca as do modern followers of F. A. Hayek.
The case I want to make is that Christians should be very content with a market economy. They should not be trying to undermine a market economy but trying to strengthen it and populate it with virtuous people. This is a position, in my view, which is certainly compatible with the late scholastics and which was most clearly revived in John Paul’s encyclical Centesimus annus. But let me begin with some quotations from encyclicals about socialism. We can often understand a concept such as the market economy better by discussing its opposite.
Socialism gets a rough ride in papal writings. It starts with Pius IX, (slide) the Tablet’s bete noire. Pius IX had a certain way with words. In the 1840s he argued that socialists misapply the terms ‘liberty’ and ‘equality’ and are preparing people for “plundering, stealing, and usurping first the Church’s and then everyone’s property.” He then described socialism as a pestilence. Having said that, though Pius IX was against socialism, he was against most things, so let’s move on.
A little later, in 1891, this is Leo XIII describing the effects of socialism, (slide) “The door would be thrown open to envy, to mutual invective, and to discord; the sources of wealth themselves would run dry, for no one would have any interest in exerting his talents or his industry; and that ideal equality about which they entertain pleasant dreams would be in reality the levelling down of all to a like condition of misery and degradation.” He then talks about how socialism offends the natural rights of mankind and that its main tenet, the community of goods, must be utterly rejected.
A century later, John Paul II’s critique of socialism strikes a similar chord. He examines socialism in the context of the God-given nature of man. And this is important because, it moves us away from the tired justification of the market economy that it simply provides the best basis for material prosperity. John Paul says, in Centesimus annus: (slide) “the fundamental error of socialism is anthropological in nature. Socialism considers the individual person simply as an element, a molecule within the social organism…Socialism likewise maintains that the good of the individual can be realized without reference to his free choice, to the unique and exclusive responsibility which he exercises in the face of good or evil.”
This critique is not just relevant to extreme forms of socialism but to all forms where families are subjected to illegitimate control by the state. Indeed, John Paul goes on to deal with the specific issue of the welfare state about which he said: (slide) “In recent years the range of such intervention has vastly expanded, to the point of creating a new type of State, the so-called “Welfare State”…[E]xcesses and abuses, especially in recent years, have provoked very harsh criticisms of the Welfare State, dubbed the “Social Assistance State”. Malfunctions and defects in the Social Assistance State are the result of an inadequate understanding of the tasks proper to the State.”
So there is little in formal Catholic teaching to give much comfort to those who believe in principle that the state should play the primary role in economic life and in the provision of welfare. If the Church rejects socialism does that mean she embraces the opposite? Of course, the answer is: “not necessarily”. The opposite economic system may be flawed too. As the old Polish joke goes, “socialism is the exploitation of man by man; capitalism is the opposite.”
Catholic social teaching has criticised capitalism at various times – sometimes in very strong language. Often, though not always, those criticisms relate to the culture of consumerism – consumption for its own sake – which the Popes have perceived is rooted in western societies. The production and consumption of addictive drugs (other than alcohol and cigarettes of which many Catholics approve wholeheartedly), pornography, and so on are undoubtedly disordered uses of economic resources. And the accumulation of material goods for their own sake, must be condemned. But the enemy here should be the sin of materialism and not the market economy.
State intervention in the economic sphere does not save us from materialism as socialism is intrinsically materialistic. It seeks to raise the human condition through increased production and the redistribution of material wealth, though, as Pope Leo noted, it does not succeed. So a debate about materialism does not really get us very far in a debate about socialism versus capitalism. Whether you live in a socialist economy or a market economy or something that combines the two, the love of money will still be the root of much evil – it just manifests itself in different ways in a socialist society.
Before moving on, there is an interesting issue of semantics it is worth bringing out. The term capitalism is often used to describe what I like to call a free economy. This was a term coined by its enemies. The phrase capitalism promotes a focus on structures (labour and capital) and outputs (goods and services) rather than promoting a focus on the human person and human flourishing – or the common good.
John Paul II makes this point. He asks whether capitalism should be the model sought by failed socialist countries and what he says is this: (slide) “If by ‘capitalism’ is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a ‘business economy’, ‘market economy’ or simply ‘free economy’.”
Personally, I prefer the term “free economy” because, as we shall see later, a free economy should be about much more than the production and consumption of goods and services that are bought and sold in the market, but let us look at the market sector of a free economy for a moment.
When we limit ourselves to praising the market economy for its role promoting the common good by providing for material needs we tend to find a grudging acceptance of the market economy by Christians – at best. Even this limited virtue is not unimportant but it is not the whole story. In the Pope’s 2009 Peace Day message, he noted that the eradication of the scandal of serious material poverty needs a thriving economy. Recognition of this should, in turn, lead us to change the way we approach policy in certain areas in which Christians are especially interested. For example, when asking how to approach the problem of poverty in the under-developed world, we should ask first – though development campaigners rarely do – “What causes prosperity?” The answer to that question is “business and enterprise”. We should then ask “what is the institutional framework that nurtures business and enterprise?” If we ask these two questions, we might put less emphasis on government-to-government aid to deal with the problem of under-development and more emphasis on the institutional structures that are necessary to nurture enterprise and that are generally missing in under-developed countries.
But, a free economy should not just be valued for the prosperity it brings. A free economy, being the opposite of the socialist economy that was criticised for anthropological, economic and political reasons by the popes, actually has inherent virtues that a government-directed economy lacks.
Firstly, in a free economy, economic resources are allocated by agreement, peacefully. I buy a pound of sausages from the butcher, he sells them to me. We both benefit from the transaction but we are not in competition and conflict. This is not to say that conflict and competition of a destructive kind do not occur, due to fallen human nature, in a market economy, but the process of mutual contracting substantially limits the damage caused by the pursuit of unrestrained selfishness. It is an extraordinary thing that a business can only prosper by co-operation with others and by serving others. It really should be a cause of some reflection.
A socialist system, on the other hand, involves allocating a fixed set of resources in a system that is necessarily beset by conflict. Whether it is the fight for the fixed number of places at state schools or the inter-generational conflicts that are being acted out on the streets of Greece, bargaining and political positioning are the very mechanisms by which governments come to resource allocation decisions.
Allocation of resources by government planning may be tolerably peaceful in a society with a very high degree of consensus. But we no longer live, if we ever did, in a society which has Christian values that are sufficiently widely shared for the democratic system to be effective in allocating economic resources without conflict.
Markets generally harness self interest – a motive that is completely different from that of selfishness with which the term is often conflated – in a way which genuinely promotes the common good. In diligently pursuing my own objectives, I can only generally succeed if I help others achieve theirs. The brewer earns nothing from producing beer unless people want to consume it. We should therefore welcome the free economy and empathise with it because, with business at its heart, it allows human beings to meet their own needs whilst, at the same time, serving the needs of others. As Pope John Paul II put it, (slide) “The social order will be all the more stable, the more it takes this fact into account and does not place in opposition personal interest and the interests of society as a whole, but rather seeks ways to bring them into fruitful harmony.” In other words the common good – the conditions for human flourishing for all – are quite compatible with the pursuit of benign self interest within a market economy. This is another insight from the late scholastics of Salamanca.
Now, it is, of course, possible for self interest to become disordered – or bent – and turned into selfishness. In the business economy the pursuit of self can do much damage. But the damage is more limited than if the selfish take their place in government and use powers of coercion to achieve their objectives in a centrally planned economy. I would rather a selfish, greedy person worked in a manufacturing or service business than as Finance Minister of an under-developed country or as chief of the secret police. Ultimately, a business must be mindful of the “other” it seeks to serve or it will go out of business.
Now, there is a temptation to think that the market economy needs to be tamed, regulated and controlled for the sake of the common good. It is dangerous, though, to assume that a modern state should through discretionary powers of taxation and regulation – and we should remember that, for example, the state will spend more than the citizen in most EU states next year – direct the market economy towards politicians’ own interpretation of the common good. The market has many self-regulating institutions mechanisms which government intervention has frequently undermined. Once a general regulatory role is given to government, restraining it becomes very difficult – governments like to regulate the market, but who regulates the government? A government is disciplined only by a quinquennial election. My baker is disciplined three times a week by my visits – or otherwise – to his shop.
Government intervention is simply the wrong tool to deal with a problem of a lack of virtue: remoralisation and evangelisation is the correct tool. I have always been genuinely puzzled why so many clergy put so much trust in government and so little trust in evangelisation to make society a better place. If we see a lack of virtue in markets, we cannot assume that this will be tamed by government and that those in government and regulatory bureaus will exhibit the virtues the rest of society lacks.
There is a branch of economics here that is very important called public choice economics. Those – including Christians – like to criticise the concept of self interest at work in markets. But, public choice economics suggests that we cannot assume that people switch off the self-interest switch when they are bureaucrats or political representatives. For this reason, regulatory bureaus tend to expand and acquire more powers. Those who enjoy exercising such powers are attracted to work in such institutions. The middle way is, then, inherently unstable. This is not a pessimistic view of human nature. It is just pointing out that we criticise the concept of self interest in markets then we cannot assume the concept away when government is responsible for the allocation of economic resources. Just look at the budget situation of the US, Japan and almost every EU country. They are all, through the democratic process, piling burdens on future generations in order to finance today’s consumption encouraged by the self interest of voters and politicians.
Interestingly, also, economists increasingly understand the implications of the limitations of human knowledge for political and economic policymaking, and for institutional design. The argument is really quite straightforward. Humans lack the knowledge to centrally plan the economy and achieve outcomes that ensure that goods and services are produced that meet needs and demands. The collapse of the communist economies was, of course, the great manifestation of that but it applies on a smaller scale too. This particular critique should resonate with Christians who should surely be aware of the limitations of the human mind and human planning to try to improve and perfect society. And this is where the problem of unintended consequences that I mentioned at the beginning comes in. Frank Field could address you for hours about the unintended consequences of the welfare system in the UK in terms of destroying families and work incentives. In short, an imperfect human institution – the state – cannot bring to perfection another imperfect human institution – the market.
But, a free economy goes beyond a free market. Indeed, some research suggests that our societies look materialistic not because we have transferred economic power from the government to the market – something which has not, in fact, happened – but because we have transferred economic activity from within the family and civil society (where we provide a service out of love and reciprocity) and into government, and to some extent, the market, where everything has to be paid for.
Furthermore, the free economy has been made to look more like a crude process of materialistic getting and spending as the state has taken primary responsibility for less conspicuous and more wholesome goods and services such as health, education, arts and culture, social insurance, pensions and the regulation of financial markets – all of which were mainly provided, a couple of generations ago, by a mixture of profit-seeking companies, mutual associations, foundations, charities, professions and community associations. The free economy can be a richer and deeper institution than it is currently, and the opportunities for mutuality and solidarity could be much more profound, enriching and effective.
Exploring this further, there are several potential areas where I believe that a renewal of understanding of Catholic social teaching, and its intrinsic compatibility with an economic and social order in which families are at the centre of decision making can make a valuable contribution to political debate. This contribution is based, unsurprisingly on the application of the principles of solidarity and subsidiarity. That renewal, I should add, has begun.
The Church, and certainly many commentators, often talk as if these two concepts are held in tension. Solidarity, it is argued, demands government action to help the poor, the homeless, the sick and so on, whereas the idea of subsidiarity provides a warning to politicians to use the lowest possible layer of government to implement policy and to leave decisions with the family if possible. This is an extreme over-simplification.
When the popes have talked about solidarity and the “preferential option for the poor” they have generally been referring to it in the context of charity – love and service in providing for one’s neighbour without expecting anything in return. This is true from the early uses of the phrase by Pope Paul VI to Pope Benedict’s 2009 World Peace Day Message in which he said (slide) “it is timely to recall in particular the ‘preferential love for the poor’ in the light of the primacy of charity, which is attested throughout Christian tradition, beginning with that of the early Church”.
Indeed, it is a fundamental error to conflate the role of the political system in seeking to help the poor through coercive redistribution with that of people acting spontaneously out of charity. The state should create a just order which promotes the common good. The state may intervene, as a last resort, to try to assist the poor. But, the virtue of solidarity, represented by love and works of charity, arises in the first place from the individual, the family and spontaneously from the community. The political order should not be the main vehicle for the practice of solidarity as it has become in the West. The state, is the last resort because it can only achieve its objectives using coercion and because it is so remote from the needs it is trying to meet – one of the messages of Deus Caritas Est.
As Christians, we need to put the state back in its place. We should make clear the need to give families, voluntary institutions and civil society room to breathe and fulfil their legitimate functions. After all, the first and biggest provider of welfare is the family. The working wife provides for the unemployed husband. Husband and wife provide for the needs of their children. Children will look after their parents and so on. Yet, over a 20 year period at least, the state has acted decisively to undermine the family as a provider of welfare.
Why does the state need putting back in its place? The reason is because of our understanding of the term subsidiarity. The state exists to help individuals, families, the community and civil associations achieve their legitimate objectives. If it does more than this our dignity and freedom in the economic sphere, which natural law demands we are allowed to exercise, is undermined. Indeed, on occasions (perhaps on increasing occasions in the UK) the government can compel us to do things that we, as Catholics, believe to be against God’s will: especially in the fields of healthcare and education.
Subsidiarity means “to help” and from a proper understanding of subsidiarity many direct policy implications follow. I will mention just one – education – where finally the penny is dropping in the Catholic Church in England and Wales. We could have interesting discussions about the environment too, as another issue where similar considerations apply.
With regard to education, we need to clearly articulate the fact that the state exists to provide the framework within which parents, including Catholic parents, can obtain education for their children of the sort that parents desire. The state exists to help families obtain an education for their children. No more. That is what the principle of susidiarity demands. We are increasingly finding that this relationship is being reversed – though the rot set in with the immediate post-war settlement. Catholic schools are becoming agents of the government providing a service of educating children on behalf of the government – albeit in a more or less Catholic context. Indeed, it is interesting that the implicit – and sometimes explicit – message of papal Catholic social teaching in this field is that the state should provide the same support to parents to have their children educated in a private school as is provided in state schools. In others words, the parent and the family should be at the centre of decision making and the state merely provides financial assistance to those families who need it. Such a system – financing parents to obtain education and not controlling and financing schools – would set Catholic parents and schools free: again as is demanded by natural law. It would also, I suspect, lead to the creation of many more Catholic schools that would provide more alternatives for parents that better suited the varied needs, character and aptitude of their children.
In concluding, let me stress that, as the Catechism makes clear, quoting from Centesimus annus, the market economy must be circumscribed in a framework of law so that the market is the servant of human freedom. Where that framework should begin and end is not something determined directly by Catholic social teaching. But, it must protect property – something which is demanded by natural law and which is the basis of a free economy. Throughout the last 200 years, Catholic social teaching has responded positively to the claims for workers rights and condemned certain manifestations of the market economy. Precisely where the relative roles of the state, the market, moral restraint and civil society begin and end is certainly a matter for prudential judgement and is historically contingent. For some Christian economists, the current financial crisis is a failure of the market economy. For others, it is a failure of over-regulated financial institutions, government monetary policy and the inevitable result of governments – especially in the US – underwriting the building up of risks in the financial system. Each view will probably solicit a different policy response consistent with Catholic social teaching.
In summary, my message is this. We need, at least, to empathise with the free economy. All too often as Christians we see certain social objectives that we would like to see fulfilled: the elimination of poverty, education and housing for all, good health services and so on. As a result we call upon the one institution (government) that we know can pass laws that we believe can help us achieve these objectives directly. We should resist the temptation to think in this way because when the state acts it undermines the autonomy of individuals, families, businesses, charities, cooperatives, mutuals and professional and civil associations to act separately and in solidarity to meet the varied needs of families and the joint needs of the community in their own ways. We also frequently find that the result of government action is often precisely the opposite of that intended. If we do not like what we see in a market economy then our response should be to promote virtue, not big government.
We should empathise with the market economy not just because the alternative has proven so disappointing but, because its inherent virtues chime with God-given human nature. The fact that a market economy involves allocating economic resources peacefully, by agreement, is a tremendous thing; the fact that it allows people to use their creativity in the economic sphere for the own benefit but also requires them to serve others in the process is something to be celebrated. The institutional variety in terms of the different types of business and employment relationships – and the variety of goods and services – that we see in a market economy in a small way mirror the uniqueness of each individual whilst the charitable and reciprocal relationships we develop in the non-market part of the free economy reflect the social obligations that we have as a result of being unique members of the same human family.
It is with good reason that the Compendium of Catholic social doctrine states that government intervention in the economic sphere must be a last resort and only continue as long as the special circumstances that require it continue. That is a strong statement and we should take note.
Now it is time to argue. It has been said about Bartalome de Las Casas that in his writing “there was a clear excess of superlatives owing to the fact that [he] thinks in extremes, even in his grammar; he rarely uses one noun when two or three will serve the same task.” He would have pulled no punches so let us now engage in dispute.
Inflationism is that monetary policy that seeks to increase the quantity of money.
Naive inflationism demands an increase in the quantity of money without suspecting that this will diminish the purchasing power of the money. It wants more money because in its eyes the mere abundance of money is wealth. Fiat money! Let the state “create” money, and make the poor rich, and free them from the bonds of the capitalists! How foolish to forgo the opportunity of making everybody rich, and consequently happy, that the state’s right to create money gives it! How wrong to forgo it simply because this would run counter to the interests of the rich! How wicked of the economists to assert that it is not within the power of the state to create wealth by means of the printing press!—You statesmen want to build railways, and complain of the low state of the exchequer? Well, then, do not beg loans from the capitalists and anxiously calculate whether your railways will bring in enough to enable you to pay interest and amortization on your debt. Create money, and help yourselves.
Other inflationists realize very well that an increase in the quantity of money reduces the purchasing power of the monetary unit. But they endeavor to secure inflation nonetheless, because of its effect on the value of money; they want depreciation, because they want to favor debtors at the expense of creditors and because they want to encourage exportation and make importation difficult. Others, again, recommend depreciation for the sake of its supposed property of stimulating production and encouraging the spirit of enterprise.
Depreciation of money can benefit debtors only when it is unforeseen. If inflationary measures and a reduction of the value of money are expected, then those who lend money will demand higher interest in order to compensate their probable loss of capital, and those who seek loans will be prepared to pay the higher interest because they have a prospect of gaining on capital account. Since, as we have shown, it is never possible to foresee the extent of monetary depreciation, creditors in individual cases may suffer losses and debtors make profits, in spite of the higher interest exacted. Nevertheless, in general it will not be possible for any inflationary policy, unless it takes effect suddenly and unexpectedly, to alter the relations between creditor and debtor in favor of the latter by increasing the quantity of money. Those who lend money will feel obliged, in order to avoid losses, either to make their loans in a currency that is more stable in value than the currency of their own country, or to include in the rate of interest they ask, over and above the compensation that they reckon for the probable depreciation of money and the loss to be expected on that account, an additional premium for the risk of a less probable further depreciation. And if those who were seeking credit were inclined to refuse to pay this additional compensation, the diminution of supply in the loan market would force them to it. During the inflation after the war it was seen how savings deposits decreased because savings banks were not inclined to adjust interest rates to the altered conditions of the variations in the purchasing power of money.
It has already been shown in the preceding chapter that it is a mistake to think that the depreciation of money stimulates production. If the particular conditions of a given case of depreciation are such that wealth is transferred to the rich from the poor, then admittedly saving (and consequently capital accumulation) will be encouraged, production will consequently be stimulated, and so the welfare of posterity increased. In earlier epochs of economic history a moderate inflation may sometimes have had this effect. But the more the development of capitalism has made money loans (bank and savings-bank deposits and bonds, especially bearer bonds and mortgage bonds) the most important instruments of saving, the more has depreciation necessarily imperiled the accumulation of capital, by decreasing the motive for saving. How the depreciation of money leads to capital consumption through falsification of economic calculation, and how the appearance of a boom that it creates is an illusion, and how the depreciation of the money really reacts on foreign trade have similarly been explained already in the preceding chapter.
A third group of inflationists do not deny that inflation involves serious disadvantages. Nevertheless, they think that there are higher and more important aims of economic policy than a sound monetary system. They hold that although inflation may be a great evil, yet it is not the greatest evil, and that the state might under certain circumstances find itself in a position where it would do well to oppose greater evils with the lesser evil of inflation. When the defense of the fatherland against enemies, or the rescue of the hungry from starvation is at stake, then, it is said, let the currency go to ruin whatever the cost.
Sometimes this sort of conditional inflation is supported by the argument that inflation is a kind of taxation that is advisable in certain circumstances. Under some conditions, according to this argument, it is better to meet public expenditure by a fresh issue of notes than by increasing the burden of taxation or by borrowing. This was the argument put forward during the war when the expenditure on the army and navy had to be met; and this was the argument put forward in Germany and Austria after the war when a part of the population had to be provided with cheap food, the losses on the operation of the railways and other public undertakings met, and reparations payments made. The assistance of inflation is invoked whenever a government is unwilling to increase taxation or unable to raise a loan; that is the truth of the matter The next step is to inquire why the two usual methods of raising money for public purposes cannot or will not be employed.
It is only possible to levy high taxes when those who bear the burden of the taxes assent to the purpose for which the resources so raised are to be expended. It must be observed here that the greater the total burden of taxation becomes, the harder it is to deceive public opinion as to the impossibility of placing the whole burden of taxation upon the small richer class of the community. The taxation of the rich or of property affects the whole community, and its ultimate consequences for the poorer classes are often more severe than those of taxation levied throughout the community. These implications may perhaps be harder to grasp when taxation is low; but when it is high they can hardly fail to be recognized. There can, moreover, be no doubt that it is scarcely possible to carry the system of relying chiefly upon “taxation of ownership” any farther than it has been carried by the inflating countries, and that the incidence of further taxation could not have been concealed in the way necessary to guarantee continued popular support.
Who has any doubt that the belligerent peoples of Europe would have tired of war much more quickly if their governments had clearly and candidly laid before them at the time the account of their war expenditure? In no European country did the war party dare to impose taxation on the masses to any considerable extent for meeting the cost of the war. Even in England, the classical country of “sound money,” the printing presses were set in motion. Inflation had the great advantage of evoking an appearance of economic prosperity and of increase of wealth, of falsifying calculations made in terms of money, and so of concealing the consumption of capital. Inflation gave rise to the pseudo-profits of the entrepreneur and capitalist which could be treated as income and have specially heavy taxes imposed upon them without the public at large—or often even the actual taxpayers themselves—seeing that portions of capital were thus being taxed away. Inflation made it possible to divert the fury of the people to “speculators” and “profiteers.” Thus it proved itself an excellent psychological resource of the destructive and annihilist war policy.
What war began, revolution continued. The socialistic or semi-socialistic state needs money in order to carry on undertakings which do not pay, to support the unemployed, and to provide the people with cheap food. It also is unable to secure the necessary resources by means of taxation. It dare not tell the people the truth. The state-socialist principle of running the railways as a state institution would soon lose its popularity if it was proposed, say, to levy a special tax for covering their running losses. And the German and Austrian people would have been quicker in realizing where the resources came from that made bread cheaper if they themselves had to supply them in the form of a bread tax. In the same way, the German government that decided for the “policy of fulfillment” in opposition to the majority of the German people, was unable to provide itself with the necessary means except by printing notes. And when passive resistance in the Ruhr district gave rise to a need for enormous sums of money, these, again for political reasons, were only to be procured with the help of the printing press.
A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, i.e., of antidemocratic, policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. It explains why inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism. When governments do not think it necessary to accommodate their expenditure to their revenue and arrogate to themselves the right of making up the deficit by issuing notes, their ideology is merely a disguised absolutism.
The various aims pursued by inflationists demand that the inflationary measures shall be carried through in various special ways. If depreciation is wanted in order to favor the debtor at the expense of the creditor, then the problem is to strike unexpectedly at creditor interests. As we have shown, to the extent to which it could be foreseen, an expected depreciation would be incapable of altering the relations between creditors and debtors. A policy aiming at a progressive diminution of the value of money does not benefit debtors.
If, on the other hand, the depreciation is desired in order to “stimulate production” and to make exportation easier and importation more difficult in relation to other countries, then it must be borne in mind that the absolute level of the value of money—its purchasing power in terms of commodities and services and its exchange ratio against other kinds of money—is without significance for external (as for internal) trade; the variations in the objective exchange value of money have an influence on business only so long as they are in progress. The “beneficial effects” on trade of the depreciation of money only last so long as the depreciation has not affected all commodities and services. Once the adjustment is completed, then these “beneficial effects” disappear. If it is desired to retain them permanently, continual resort must be had to fresh diminutions of the purchasing power of money. It is not enough to reduce the purchasing power of money by one set of measures only, as is erroneously supposed by numerous inflationist writers; only the progressive diminution of the value of money could permanently achieve the aims which they have in view. [5] But a monetary system that corresponds to these requirements can never be actually realized.
Of course, the real difficulty does not lie in the fact that a progressive diminution of the value of money must soon reach amounts so small that they would no longer meet the requirements of commerce. Since the decimal system of calculation is customary in the majority of present-day monetary systems, even the more stupid sections of the public would find no difficulty in the new reckoning when a system of higher units was adopted. We could quite easily imagine a monetary system in which the value of money was constantly falling at the same proportionate rate. Let us assume that the purchasing power of this money, through variations in the determinants that lie on the side of money, sinks in the course of a year by one-hundredth of its amount at the beginning of the year The levels of the value of the money at each new year then constitute a diminishing geometrical series. If we put the value of the money at the beginning of the first year as equivalent to 100, then the ratio of diminution is equivalent to 0.99, and the value of money at the end of the nth year is equivalent to 100 × 0.99n-1. Such a convergent geometrical progression gives an infinite series, any member of which is always to the next following member in the ratio of 100 : 99. We could quite easily imagine a monetary system based on such a principle; perhaps even more easily still if we increased the ratio, say, to 0.995 or even 0.9975.
But however clearly we may be able to imagine such a monetary system, it certainly does not lie in our power actually to create one like it. We know the determinants of the value of money, or think we know them. But we are not in a position to bend them to our will. For we lack the most important prerequisite for this; we do not so much as know the quantitative significance of variations in the quantity of money. We cannot calculate the intensity with which definite quantitative variations in the ratio of the supply of money and the demand for it operate upon the subjective valuations of individuals and through these indirectly upon the market. This remains a matter of very great uncertainty. In employing any means to influence the value of money we run the risk of giving the wrong dose. This is all the more important since in fact it is not possible even to measure variations in the purchasing power of money. Thus even though we can roughly tell the direction in which we should work in order to obtain the desired variation, we still have nothing to tell us how far we should go, and we can never find out where we are already, what effects our intervention has had, or how these are proportioned to the effects we desire.
Now the danger involved in overdoing an arbitrary influence—a political influence; that is, one arising from the conscious intervention of human organizations—upon the value of money must by no means be underestimated, particularly in the case of a diminution of the value of money. Big variations in the value of money give rise to the danger that commerce will emancipate itself from the money which is subject to state influence and choose a special money of its own. But without matters going so far as this it is still possible for all the consequences of variations in the value of money to be eliminated if the individuals engaged in economic activity clearly recognize that the purchasing power of money is constantly sinking and act accordingly. If in all business transactions they allow for what the objective exchange value of money will probably be in the future, then all the effects on credit and commerce are finished with. In proportion as the Germans began to reckon in terms of gold, so was further depreciation rendered incapable of altering the relationship between creditor and debtor or even of influencing trade. By going over to reckoning in terms of gold, the community freed itself from the inflationary policy, and eventually even the government was obliged to acknowledge gold as a basis of reckoning.
A danger necessarily involved in all attempts to carry out an inflationary policy is that of excess. Once the principle is admitted that it is possible, permissible, and desirable, to take measures for “cheapening” money, then immediately the most violent and bitter controversy will break out as to how far this principle is to be carried. The interested parties will differ not merely about the steps still to be taken, but also about the results of the steps that have been taken already. It would be impossible for any inflationary measures to be taken without violent controversy. It would be practically impossible so much as to consider counsels of moderation. And these difficulties arise even in the case of an attempt to secure what the inflationists call the beneficial effects of a single and isolated depreciation. Even in the case, say, of assisting “production” or debtors after a serious crisis by a single depreciation of the value of money, the same problems remain to be solved. They are difficulties that have to be reckoned with by every policy aiming at a reduction of the value of money.
Consistently and uninterruptedly continued inflation must eventually lead to collapse. The purchasing power of money will fall lower and lower, until it eventually disappears altogether. It is true that an endless process of depreciation can be imagined. We can imagine the purchasing power of money getting continually lower without ever disappearing altogether, and prices getting continually higher without it ever becoming impossible to obtain commodities in exchange for notes. Eventually this would lead to a situation in which even retail transactions were in terms of millions and billions and even higher figures; but the monetary system itself would remain.
But such an imaginary state of affairs is hardly within the bounds of possibility. In the long run, a money which continually fell in value would have no commercial utility. It could not be used as a standard of deferred payments. For all transactions in which com modities or services were not exchanged for cash, another medium would have to be sought. In fact, a money that is continually depreciating becomes useless even for cash transactions. Everybody attempts to minimize his cash reserves, which are a source of continual loss. Incoming money is spent as quickly as possible, and in the purchases that are made in order to obtain goods with a stable value in place of the depreciating money even higher prices will be agreed to than would otherwise be in accordance with market conditions at the time. When commodities that are not needed at all or at least not at the moment are purchased in order to avoid the holding of notes, then the process of extrusion of the notes from use as a general medium of exchange has already begun. It is the beginning of the “demonetization” of the notes. The process is hastened by its paniclike character. It may be possible once, twice, perhaps even three or four times, to allay the fears of the public; but eventually the affair must run its course and then there is no longer any going back. Once the depreciation is proceeding so rapidly that sellers have to reckon with considerable losses even if they buy again as quickly as is possible, then the position of the currency is hopeless.
In all countries where inflation has been rapid, it has been observed that the decrease in the value of the money has occurred faster than the increase in its quantity. If m represents the nominal amount of money present in the country before the beginning of the inflation, P the value of the monetary unit then in terms of gold, M the nominal amount of money at a given point of time during the inflation, and p the value in gold of the monetary unit at this point of time; then, as has often been shown by simple statistical investigations, mP > Mp. It has been attempted to prove from this that the money has depreciated “too rapidly” and that the level of the rate of exchange is not “justified.” Many have drawn from it the conclusion that the quantity theory is obviously not true and that depreciation of money cannot be a result of an increase in its quantity. Others have conceded the truth of the quantity theory in its primitive form and argued the permissibility or even the necessity of continuing to increase the quantity of money in the country until its total gold value is restored to the level at which it stood before the beginning of the inflation, that is, until Mp = mP.
The error that is concealed in all of this is not difficult to discover. We may completely ignore the fact already referred to that the exchange rates (including the bullion rate) move in advance of the purchasing power of the money unit as expressed in the prices of commodities, so that the gold value must not be taken as a basis of operations, but purchasing power in terms of commodities, which as a rule will not have decreased to the same extent as the gold value. For this form of calculation too, in which P and p do not represent value in terms of gold but purchasing power in terms of commodities, would still as a rule give the result mP > Mp. But it must be observed that as the depreciation of money proceeds, the demand for money (that is, for the kind of money in question) gradually begins to fall. When loss of wealth is suffered in proportion to the length of time money is kept on hand, endeavors are made to reduce cash holdings as much as possible. Now if every individual, even if his circumstances are otherwise unchanged, no longer wishes to maintain his cash holding at the same level as before the beginning of the inflation, the demand for money in the whole community, which can only be the sum of the individuals’ demands, decreases too. There is also the additional fact that as commerce gradually begins to use foreign money and actual gold in place of notes, individuals begin to hold part of their reserves in foreign money and in gold and no longer in notes.
An expected fall in the value of money is anticipated by speculation so that the money has a lower value in the present than would correspond to the relationship between the immediate supply of it and demand for it. Prices are asked and given that are not related to the present amount of money in circulation nor to present demands for money, but to future circumstances. The panic prices paid when the shops are crowded with buyers anxious to pick up something or other while they can, and the panic rates reached on the exchange when foreign currencies and securities that do not represent a claim to fixed sums of money rise precipitously, anticipate the march of events. But there is not enough money available to pay the prices that correspond to the presumable future supply of money and demand for it. And so it comes about that commerce suffers from a shortage of notes, that there are not enough notes on hand for fulfilling commitments that have been entered into. The mechanism of the market that adjusts the total demand and the total supply to each other by altering the exchange ratio no longer functions as far as the exchange ratio between money and other economic goods is concerned. Business suffers sensibly from a shortage of notes. This bad state of affairs, once matters have gone as far as this, can in no way be helped. Still further to increase the note issue (as many recommend) would only make matters worse. For, since this would accelerate the growth of the panic, it would also accentuate the maladjustment between depredation and circulation. Shortage of notes for transacting business is a symptom of an advanced stage of inflation; it is the reverse aspect of panic purchases and panic prices, the reflection of the “bullishness” of the public that will finally lead to catastrophe.
The emancipation of commerce from a money which is proving more and more useless in this way begins with the expulsion of the money from hoards. People begin at first to hoard other money instead so as to have marketable goods at their disposal for unforeseen future needs—perhaps precious-metal money and foreign notes, and sometimes also domestic notes of other kinds which have a higher value because they cannot be increased by the state (for example, the Romanoff ruble in Russia or the “blue” money of communist Hungary); then ingots, precious stones, and pearls; even pictures, other objects of art, and postage stamps. A further step is the adoption of foreign currency or metallic money (that is, for all practical purposes, gold) in credit transactions. Finally, when the domestic currency ceases to be used in retail trade, wages as well have to be paid in some other way than in pieces of paper which are then no longer good for anything.
The collapse of an inflation policy carried to its extreme—as in the United States in 1781 and in France in 1796—does not destroy the monetary system, but only the credit money or fiat money of the state that has overestimated the effectiveness of its own policy. The collapse emancipates commerce from etatism and establishes metallic money again.
It is not the business of science to criticize the political aims of inflationism. Whether the favoring of the debtor at the expense of the creditor, whether the facilitation of exports and the hindrance of imports, whether the stimulation of production by transferring wealth and income to the entrepreneur, are to be recommended or not, are questions which economics cannot answer. With the instruments of monetary theory alone, these questions cannot even be elucidated as far as is possible with other parts of the apparatus of economics. But there are nevertheless three conclusions that seem to follow from our critical examination of the possibilities of inflationary policy.
In the first place, all the aims of inflationism can be secured by other sorts of intervention in economic affairs, and secured better, and without undesirable incidental effects. If it is desired to relieve debtors, moratoria may be declared or the obligation to repay loans may be removed altogether; if it is desired to encourage exportation, export premiums may be granted; if it is desired to render importation more difficult, simple prohibition may be resorted to, or import duties levied. All these measures permit discrimination between classes of people, branches of production, and districts, and this is impossible for an inflationary policy. Inflation benefits all debtors, including the rich, and injures all creditors, including the poor; adjustment of the burden of debts by special legislation allows of differentiation. Inflation encourages the exportation of all commodities and hinders all importation; premiums, duties, and prohibitions can be employed discriminatingly.
Second, there is no kind of inflationary policy the extent of whose effects can be foreseen. And finally, continued inflation must lead to a collapse.
Thus we see that, considered purely as a political instrument, inflationism is inadequate. It is, technically regarded, bad policy, because it is incapable of fully attaining its goal and because it leads to consequences that are not, or at least are not always, part of its aim. The favor it enjoys is due solely to the circumstance that it is a policy concerning whose aims and intentions public opinion can be longest deceived. Its popularity, in fact, is rooted in the difficulty of fully understanding its consequences.
I have just listened to the Budget Debate and quite frankly am growing more and more tired of the political point scoring arena that Parliament has become. It was unbridled electioneering, totally populist and I am sure none of us are fooled.
The implied nonsense that Belize are now cooperating with UK tax authorities to ensnare Michael Ashcroft when he has done nothing contrary to current tax laws was pathetic. Do they think we have forgotten that the Labour Peers Paul and Cohen are also non-domiciled for tax purposes? To use the Budget which should present a sober look at the Nations books for such gerrymandering is an insult to the shareholders/electorate they purport to serve.
I therefore exercise my right to express an opinion and to look objectively at how the current ‘management’ are looking after my interests; after all I have been obliged by them over the years to contribute lavishly to their misguided vision for our wellbeing!
Quite simply if this was an AGM and I was a shareholder with voting rights I would back a motion to sack the lot of them based on performance. In that sense I cannot wait for the forthcoming election to register my vote of no confidence. I am particularly unhappy at the parlous state of our benefits-driven society. The Conservatives are at least offering some reasonable solutions to tackling the welfare state thanks largely to the excellent work undertaken by Iain Duncan Smith’s think tank the Centre for Social Justice. The Party are undoubtedly more compassionate than they were in the Thatcher era and, unlike Lord Tebbit’s solution for the unemployed “get on your bike and find a job”, contemporary caring Conservative Policy prime facie is to ride alongside!
I watched Channel Four News last night and was captivated by John Snow interviewing some of the good folk of Luton; a large number of his interviewees stated that they wouldn’t vote. How many times do politicians need to hear that people don’t bother voting because of the mess they have made of our democracy before they listen to vox pop and try to understand our frustrations with politics and politicians? Our Cobden Centre colleague Douglas Carswell MP sets out the reasons why people have disengaged in ‘The Plan’ the book he co-authored with Daniel Hannan MEP. They correctly deduce that voter apathy is mainly due to the inability of politicians to effect change. Carswell quotes doorstep comments such as “you’re all the same”, “it doesn’t matter how I vote, nothing changes” and “you make promises but you never deliver”. Carswell and Hannan go onto unpack the route that led to this apathy and make some sound policy recommendations to effect rapid change but, sorry chaps, this is not rapid enough for me so I have decided to go one step further motivated in part by the following:
(updated)Approximate UK Income Tax receipts £146bn versus welfare payments £196bn. However well the Chancellor spins these numbers this shareholder ain’t happy!!
Benefits saved Tax and NI gained per person returning to work >£8000 per annum (source CSJ). ((NI – National Insurance is a clever idea that helps citizens save for benefits, retirement and other social needs. It is run by the Government in much the same way as Bernie Madoff ran his quaint little investor scheme except, as it is run by the state, it is entirely legal. Therefore none of the people running it will be held accountable and go to jail for 150 years when the shareholders realise that all of their money and more is being spent straight away and not invested for their future benefit.))
NHS cost per capita £860 per annum this doubles for the unemployed perhaps because they constantly need to prove they are sick to continue receiving benefits as well as the inherent problems some genuinely face to their wellbeing by being unemployed. For a thorough evaluation, read the CSJ reports.
Pure and simple, ‘helping one another’. do you remember that old-fashioned and now outdated idea ‘neighbourliness’?
It is entirely correct that a caring, prosperous and civilised society should look after those unable to fend for themselves but when in 1945 Atlee’s Post War Labour Government began implementing the recommendations of the 1942 Beveridge report they weren’t up front about this creeping socialist agenda that has led to an unacceptable reliance on state handouts sadly not by the deserving in society but the most devious who often exhibit brilliant cunning and guile at exploiting our overly complex system. Oh that those talents could be harnessed elsewhere for good! Others newly unemployed soon see how they work the system and join their ranks. “Up to three generations of some families have never worked and are entrenched in economic dependency” this is oft rolled out, well known and needs proactive solutions. We can trust some politicians like Iain Duncan Smith, Philippa Stroud, Steve Baker, Douglas Carswell and Frank Field amongst others to make their voices heard in the corridors of power but we should not sit back and wait for them to legislate a way out of this mess.
I have come to the conclusion that instead of raging at the machine we should attempt to solve our own problems in our own communities and not rely on politicians and the state.
Why? Simply because problems like unemployment are corrosive not just to those going through the process but to communities, society in general and we as ‘shareholders’ cannot afford to fund it anymore.
This thought process and the closure of my own business due to the downturn allowed me the time to set up a Job Club in my home town Edenbridge, then neighbouring Oxted, now Richmond Borough and soon Sutton. I have also founded a charity GB Job Clubs to train and resource other volunteers to set up clubs in their own communities. This was all inspired by a Conservatives Social Action seminar on ‘How to Start a Job Club’ in March 2009.
Remember David Cameron’s speech to the Open University on May 26th 2009 advocating localism? The Conservatives have been very proactive in encouraging social action as this doesn’t require legislation or an election to implement. Iain Duncan Smith encapsulated this when he said,“Our approach is based on the belief that people must take responsibility for their own choices but that government has a responsibility to help people make the right choices.”
Well said Sir, however, I come from the viewpoint that the Government is not there to provide everything for us; if we take control of our own destinies then we might actually wrestle some control back from the state who continue in their desire to nanny us from cradle to grave. If we serve ourselves more and rely less on state provision we can shrink Government, yep that’s right fewer politicians, dismantle quangocracy, reduce red tape oh boy the list goes on! Maybe in time we can insist on a reduction in the funds we are required to invest to keep UK Plc afloat!
I recently compared notes with some fellow Job Club leaders and between our six clubs discovered that we had helped 105 folk back to work over the last six months. If the cost/saving benefit is £8000 per annum per person we have saved the exchequer and more importantly ourselves as tax payers/shareholders £840,000 per annum. That is the result of only six Job Clubs run voluntarily at little or negligible cost to anyone. That’s right there is hardly any cost involved in setting up and running a Job Club and we don’t want ‘government funding’ or put it another way some of our tax bucks back! Why not? It would probably require our application and subsequent performance to be assessed by one of those quangos or an army of civil servants wrapping us up in red tape and emasculating our ability to deliver.
GB Job Clubs now has 25 ‘Get Britain Working’ inspired Job Clubs listed on the Directory page of its website, www.gbjobclubs.org. If the success rate of our six clubs is replicated in all 25 , we would save ‘ourselves’ £3,500,000 per annum. How about 500 clubs up and down the country each succeeding to get just one person per month back to work that equates to a saving of £48,000,000.
Now I like numbers like this and, as a shareholder, they excite me! Detractors will point out that finding people jobs is reliant on the economy and that £48m is a drop in the ocean in an overall spend of £185bn. I know, but every single person we have helped is worth much more than money. We are seeing lives transformed by opportunity and communities in a small but visible way impacted by helping one another and this is undoubtedly great for social cohesion. This can spread like a virus. Just imagine that, instead of aspiring to be in gangs and earn illicit money from delivering drugs, the new role model is someone in a community who has set up his/her own business and can legitimately employ someone.
I have used GB Job Clubs as a launching pad for a microfinance and mentoring project named the Jericho Programme where we incubate small ventures in communities up and down the country. The first pilot scheme is now underway in Edenbridge where we have backed two heroes from the Job Club to start their own garden maintenance business. It takes guts to wean yourself off state support especially when you have three children as is the case with one of our entrepreneurs but they are going for it with gusto. All it has taken is encouragement, support from a mentor, a small loan for equipment, a van donated by the local council and the goodwill of a community. Cobden Centre founder Toby Baxendale has joined me in funding six such projects in the UK and once we can prove they work we will set about raising funds and recruiting fellow mentors to empower these latent entrepreneurial heroes that exist in our midst.
We can’t cure all our problems ourselves but we must take more control of socio-economic issues where we are able. We will reap great dividends and that has got to be great news for all shareholders!
Via Sean Corrigan and Toby Baxendale, “The tab from LEH/AIG so far? Around about $2 trillion if we look at trend US federal debt trajectory before and after that fateful weekend”:
See also this video, “Stop Spending Our Future”:
Could it be time to stop and question the ethics of all this deficit spending, quantitative easing and tax?
Much to the annoyance of more tribal associates, I have long argued that there are natural friends of liberty to be found amongst elements of all our mainstream political parties.
In this context, mindful of the history and heritage of classical liberalism, I have long admired features of the Orange Book crowd in the Liberal Democrats. Recognising that the party leader, Nick Clegg, combines an interest in fiscal conservatism with the ideals of liberal social reform, I am not surprised by his recent assertion that he is an admirer of Margaret Thatcher.
While I am no aficionado of psephology or electoral politics, it makes strategic sense to me if the Lib Dems continue their drift away from the politics of top down and bloated social democracy, towards more open, inclusive and market-oriented perspectives. In so many ways, the Lib Dems could again become an engine of genuine out of the box radicalism. In defiance of the political class and their stultifying corporatism, surely thinking Lib Dems would find little to disagree with when it comes to the principles of honest money, sound banking and the benefits of free trade. But the key here is not just to talk the talk. At some point, it becomes necessary to walk the walk.
The current debate about bankers’ bonuses is often seen as one of fairness pitted against the greed of those nasty capitalists,.
To me, bankers are lawfully working within the system – one that is rotten to the core. The banking system is the greatest of all examples of State corporate capitalism. We have a central bank that is State owned, we have a legal tender law that prevents competition in the provision of the production of money, and we have private sectors banks which are licensed by the State to be its agent when it wants to monetise its very own debts and create inflation at the expense of its citizens: people who have been prudent and thrifty as well as those on fixed income.
The State has one important central intention: to hide its prolific over spending. We have private sector banks that have legal privilege granted to them so they can use their depositors’ money to lend out many times over to entrepreneurs. They are the only type of business in the whole country permitted do this. All other commercial enterprises at all points in time need to keep their current creditors whole, otherwise they are insolvent. There is no requirement at all in this country for any bank to keep even one penny in reserves against their depositors’ funds. In fact, it has been a stated fact of law since 1811 in Carr V Carr that “his” deposited funds are not his, but are in fact the banks’.
This fractional reserve banking system we have can only work with a lender of last resort i.e. the State owned central bank with legal tender laws. This means that in partnership with the State, the State can monetise its debts (at the expense of you and me) and the banks can keep as little reserves as they can get away with to make a return on capital that you and I in the real capitalist private sector could never do. This encourages risk. Indeed with the banks now able to borrow at the taxpayers’ expense via the discount window (heavily subsidised short term central bank funding) and know there is a guarantee of a bail out should their gambles go wrong makes the state and the bankers two equal partners in a very unjust process.
The resulting situation is what I call ‘corporate capitalism’ (thoroughly amoral) as opposed to ‘capitalism’, which is totally moral. This needs some explaining, as I suspect worthy people are shooting arrows at the wrong target.
We know that the free market capitalist system is without doubt the most efficient creator and allocator of resources. Adam Smith taught us that “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest” in his Wealth of Nations. Self interest or the profit motive drives man to create and to provide all the multiplicity of goods and services we have enjoyed and will enjoy.
Mises in his famous book Socialism, showed us that if Society was run by planners, the price system which allows resources to flow to their most desired uses would not function. Indeed it would impoverish anyone nation that tried it. If, say. the planner could not correctly witness all the competing bids and resource allocations for metals that were capable of being used in the construction of railroad tracks (that involves many companies competing for scarce resources) he would never know which metal would be the most cost effective to build his railroad. No one planner would be able to economically calculate, or indeed, no army of planners would be able to calculate and allocate all the resources of Society in the socialist economy better than the many millions of participants in the economy allocating resources via the price mechanism. The experiment in the Soviet bloc with socialism impoverished at least three generations and lead to wide scale death and a general shortage of life, and misery.
Hayek, in his very famous essay “The Use of Knowledge in Society” added to the critique of Mises by pointing out that absenting the price system would mean that the central planning officials would need to absorb the entire knowledge of all the people in society to effectively plan their needs. This was absurd and impossible.
All State planned schemes, from the provision of money to the provision of health and education – even in our cosy mixed economy – could be done better by an unhampered market. We are thus weary of all bloated government departments and officials who say they can do something better for us – they can’t.
The efficiency case for an unhampered market, or free market capitalism is clear and unchallengeable. The subjective actions of freely consenting adults in a capitalist system produce the most amount of goods in the most efficient way. But is there an objectively moral case for the capitalist system? I attempt to answer it in the remaining part of this Insight article.
First Principles: Secular Argument
I Argue
One thing that distinguishes human beings from all other life forms is our ability to communicate with each other via talking. Only human beings can make a proposition. The question of what is just or unjust only arises because I can debate or argue this point with another person. To be able to argue my position I must be in control of my physical and mental self. I must own myself in order to be to be a human being. I have the total right to use all my physical and mental faculties to participate in life, otherwise I cannot even exist as a human being expressing an opinion. I do not know many people who would argue with this. If I did not own my own faculties I could not participate in life except under the command of who owned me. This also implies that just so much as I own myself, I do not own anyone else. It also follows that if I do something that violates another human being without their consent I violate their right to express their very humanness.
Thus, I deduce that by my very being , I own myself , I own my own property as me, I have a right not to be interfered with so long as I do not interfere with anyone else. It clearly follows that if I were to interfere with someone else’s property, they would not own it. This would deprive them of their own humanity, I suggest. This is a deduction from the axiom that to exist I need to argue. I come to this conclusion via the Haberrmasian axiom of interpersonal argument that has been so cleverly adapted by Hans Herman Hoppe in his book The Economics and Ethics of Private Property.
To argue against this you explicitly acknowledge control of your faculties, at the very least. Following Kant’s Golden Rule that a norm should be universal in its applicability should it be objectively valid, this proposition surely fulfils this requirement to be a totally objective axiomatic principle.
All ethical propositions, such as socialism, that say that you owe a duty to the State to provide for others, are violations of the very distinguishing thing that makes you a human being and not a rock or a colony of ants. To advocate any form or socialism, be it of the democratic variety, the communist variety, or indeed the mixed economy is to violate your very essence of being a human.
John Locke in his “Two Treatises of Government” spells out that property or, if you like all resources exist prior to any government. Man mixes his labour with what he finds and it is by right his. Government cannot ‘dispose of the estates of the subjects arbitrarily’. Locke left us with a conundrum called “Locke’s proviso.” This is where if a man mixes his labour to own something that was not owned before; he must always leave a “sufficient” amount for other human beings.
Jesus Huerta de Soto, one of the greatest living polymath Austrian School teachers in his essay “The Ethics of Capitalism” , shows us how possibly the other living giant of the Austrian School, Israel Kirzner in “Discovery, Capitalism, and Distributive Justice” has solved this proviso of Locke. And allows us to build the objective moral ethic of capitalism.
Socialist, social democrats and a large body of modern day liberals and conservatives have a distributive conception of justice that is about a top down approach of redistribution of scarce resources from those who do have to those who that have less, or nothing, or whose lobby groups has succeeded in extracting something from those that have. Kirzner shows us how as all human being are creative actor: they are always engaging in entrepreneurial activity to generate new goods and services. All human beings are alert to opportunity, some to a greater degree than others. The fruits of this alertness arises via their actions. This is universally so. To not act would not create these things. So he proposes an axiom that all human beings have a natural right to the fruits of their own entrepreneurial creativity. As these things are created out of nothing, it implies that the acting person has an undoubted right to the quiet and peaceful enjoyment of the fruits of his or her labour. If it did not exist before, it cannot be a negative to anyone else. So Locke’s proviso is overcome by the understanding of society as dynamic and spontaneous constantly evolving process with alert actors constantly creating new goods and services that they must have an unquestionable right to own.
De Soto coins the term ‘Dynamic Efficiency’ to describe this process. He also points out that the free market capitalist system – that we know is the most efficient system – is also the most just and in fact, these two concepts are indeed two sides of the same one coin. Any form of intervention is immoral as it impedes the creative capacity of individuals to express their creativity and create all the wide range of goods and services we have. It should be pointed out that top down provision of health, education, transport, industry etc is inefficient and hence unjust as it suppresses the creative activity of human beings. Absent the profit motive and you will get sub optimal results.
Do Soto points out that the last Pope, Pope John Paul II in his Centesimus Annus, which built on the earlier work of the Rerum Novarum of Pope Leo XIII, established the universal moral capitalist ethic by acknowledging the natural right (God given) to express your very creativity unhindered so long and you hinder no one else.
First Principle: Theological – God Endowed Rights
I Exist
Writing about the morality of capitalism in glowing positive terms as I have done above and setting it in the backdrop of universally applicable objective axioms is not as unfashionable as talking to any thinking person about God, but only just! Such is the secular society we live in; you are considered to be an ill informed mystic should you engage in “god bothering.” The See of Peter would naturally see this differently and I am very grateful for De Soto to direct me to the pro capitalist teachings of the Catholic Church.
Are the above self evident axioms that are universally applicable in all times and in all places to everybody there because we are human or are they there because they are God endowed?
I can ague both, but I favour self evident God endowed over self evident secular, although the latter can stand on its own legs. Why?
I wrote an article about the proof God three years ago for LewRockwell.com. In short, I take the Aristotelian inspired position that as I exist I know that other physical things exist. I know that each and every one of these physical things must have been caused by another physical thing. I know that nothing is infinite. If it was, I would not exist as for it to be infinite, it would occupy all time and space and I would not exist. As I exist, I know this cannot be the case. I know there is a beginning to the universe and that there are physical boundaries to the universe, therefore I know there cannot be an infinite series of physical causes and effects as there would be no boundary and no beginning. Therefore what caused the first physical thing must indeed be immaterial if it cannot be a physical cause. This immaterial thing is what I label as ‘God’. So I conclude God does exist and the only act I can attribute to God by a priori reasoning is that God created everything. As I like to exist I am very grateful for this and can only conclude that God has good intentions. If I do not like to exist, I can choose not to and commit suicide. God is therefore good for me and objectively good for all human beings. As God has created everything, he has endowed us with the ability to reason and engage in the formation of reasoned propositions, the latter which is undoubtedly a unique attribute to mankind the former quite possible unique to mankind, sets the foundation for the derivation of the rights of man and the very ethics of capitalism.
